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Gray outmaneuvers Fenty on lottery

Political wrangling in backrooms plays a role in approval of contract

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When D.C. Council chairman and mayoral candidate Vincent C. Gray heard that a supporter of Mayor Adrian M. Fenty had won a piece of the 2008 D.C. Lottery contract, he was determined to scuttle the award.

Mr. Gray wasn't satisfied keeping D.C. businessman and former club owner Warren C. Williams Jr. out of the deal; he wanted one of his friends in on it. In the end, Mr. Gray got his wish — and outmaneuvered the mayor in the process.

Two years and a second round of bidding later, the tortured path to approval of a D.C. Lottery contract has produced a similar result — minus Mr. Williams as the local partner of lottery giant Intralot and with the addition of a Gray ally.

The D.C. Lottery saga offers more than a glimpse of a politicized procurement process. It also is a preview of the machinations and bitterness likely to shape the upcoming mayoral election that pits Mr. Gray against Mr. Fenty.

The $38 million lottery contract, approved by the D.C. Council in December, came under fresh scrutiny in recent weeks after Eric W. Payne, former director of contracts for the District's chief financial officer, Natwar M. Gandhi, accused Mr. Gandhi in a lawsuit of firing him for complaining about the process to an internal oversight unit.

The election already is focused on which candidate is more beholden to his natural allies: Mr. Fenty to his college friends and their associates or Mr. Gray to the old guard of D.C. politics that held sway for more than 20 years.

At stake is whether the District will develop a reputation as a city where companies can do business on a level playing field or where cronyism and personal politics taint major contract awards and act as a deterrence to competition.

Mr. Gray did not return numerous telephone calls and e-mails seeking comment.

Getting personal

D.C. Attorney General Peter Nickles, speaking for Mr. Fenty's office, said he "saw nothing to persuade me there was any taint to the procurement process."

The lottery contract is one of the largest overseen by the chief financial officer, so as the bidding process geared up in 2007, staff members, lottery companies, lobbyists and politicians girded for battle. The contest was between two companies that run statewide lotteries: GTech and Intralot, both based outside the District.

GTech was part of a partnership that ran the city lottery for 25 years. Under the name Lottery Technology Enterprises (LTE), the firm teamed with local businessman P. Leonard Manning Jr., who has ties to several council members, including Mr. Gray.

But the Mr. Gandhi lost faith in LTE, Mr. Payne said in his lawsuit. In 2006, LTE issued $70,000 in phony lottery tickets and later was fined $1.4 million by the city. In 2007, LTE was assessed more than $300,000 in fines because of operational glitches.

Intralot was teamed with Mr. Williams' company, W2Tech. Because of his business relationship with one of Mr. Fenty's former fraternity brothers and because he had been awarded a number of large city contracts, Mr. Williams has been labeled a Fenty crony. He has been criticized for what Fenty foes claim are questionable real estate and nightclub ventures.

The politics played out in backrooms across the city and was highly personal. As the bidding began, Intralot was judged to have superior price and technology, Mr. Payne said. But as soon asMr. Paynetried to move the contract toward approval by the D.C. Council, he said, the process got bogged down.

Mr. Payne to sent an e-mail on Feb. 28, 2008, to David Tseng, general counsel to the chief financial officer, relaying concerns from the mayor's office about getting Mr. Gray to put the contract on the council agenda. "Don't know what horse-trading is going on to get this done, but we may want to get involved in this process with Gray's staffer," he said.

Getting even?

According to Mr. Payne, Mr. Tseng told him to meet with members of the council's Finance and Revenue Committee, who he said grilled him about the vendors rather than the contract and appeared hostile toward W2Tech and Mr. Williams.

In early April, Mr. Payne, Mr. Tseng, Mr. Gandhi and others met with council member Jack Evans, the Finance and Revenue Committee chairman, Mr. Payne said. The request from Mr. Evans, he said, was simple: Could he "get rid of Warren Williams Jr., and replace him" with Mr. Manning?

According to his lawsuit, Mr. Payne said it would not be legal to make such a move, but Mr. Gandhi pressured him to do so.

Mr. Payne said that in early May 2008, he attended a meeting with Mr. Gandhi, members of the chief financial officer's office and Mr. Gray, who adamantly refused to place the lottery contract on the agenda.

"The chairman cleared the room and stayed behind to talk with the CFO," Mr. Payne said. "When the CFO came out, he told me to 'figure out a way to get rid of Williams and replace him with Manning, or rebid the contract.'"

When Mr. Payne resisted, he said Mr. Gandhi replied, "If we don't rebid the contract, we're going to antagonize the chairman."

Through a spokesman, Mr. Gandhi said he "vehemently denies that those conversations took place."

Soon thereafter, Mr. Payne said, he was stripped of his procurement duties and relegated to basic oversight of the lottery contract. Eventually, he was fired.

"What became clear," he said, "was that instead of protecting the process, Gandhi became an advocate for the politically connected and the powerful. That left me out in the cold and without a job."

Old connections

For Intralot and GTech, the D.C. Lottery was just another opportunity. In the past year, Intralot has had the upper hand, winning contracts in six states. But the D.C. Lottery is unique in that the city's contracting laws assign "preference points" for proposals that incorporate locally owned businesses — regardless of substantive experience.

That places a premium on business and political relationships that go back decades.

Byron E. Boothe Jr., Intralot's vice president of government relations, said he got a taste of just how personal the politics had become when, in the spring of 2008, he was asked by Mr. Payne whether Intralot would consider Mr. Manning instead of Mr. Williams as the local business partner.

"I'm thinking, we can't change partners now," he said. "It didn't make sense, ethically or practically speaking."

Mr. Payne said Mr. Gandhi directed him to make that call.

A spokesman for Mr. Gandhi denied the claim.

After repeated failed attempts by the mayor to force an up-or-down lottery contract vote, Mr. Fenty and Mr. Gray met in late November 2008. According to multiple sources familiar with that meeting, Mr. Fenty would not agree to pressure Intralot to go with a different local partner and pressed for a vote.

Mr. Gray brought the Intralot contract award before the council in December 2008, and it was rejected.

Intralot stepped back and reconsidered its approach. But before the council voted, Mr. Gray's allies had begun strategizing about how to land a piece of the ultimate deal.

Emmanuel Bailey, a former Fannie Mae executive, met with Mr. Gray in December 2008 and soon began representing himself to Intralot and Mr. Williams as someone who could deliver Mr. Gray's support, according to sources who spoke with Mr. Bailey at the time and documents obtained by The Times.

Mr. Bailey told The Times that he and his friend, former Ward 7 council member Kevin P. Chavous, met with Mr. Gray but he did not recall the date. According to council documents, Mr. Chavous represented Intralot at the time. After the meeting, Mr. Bailey said Mr. Chavous stayed behind to talk with Mr. Gray.

Mr. Bailey had other supporters in the Gray camp, including golfing buddy and superlobbyist David W. Wilmot, former attorney to Marion Barry and a key Gray fundraiser. Mr. Bailey's mother, Barbara, worked with Mr. Gray in the 1990s at the D.C. Department of Human Services.

Mr. Wilmot, who has vast business interests in real estate, parking lots and health care facilities, was a trustee on LTE's $35 million bond in the original lottery contract, according to documents obtained by The Times. He also had ties to others looking to get into the game.

Shortly before the council vote, Mr. Wilmot helped persuade Mr. Manning to step aside as GTech's partner, according to sources familiar with the matter. Mr. Manning ended up with a two-year lottery contract extension and settled his fines with the city, according to Mr. Nickles.

New alliances

In the meantime, published reports show, Mr. Wilmot represented a group that included Robert Johnson, founder and president of Black Entertainment Television, and Robert Washington, a former D.C. lawyer who licenses slot machines in the Caribbean, who planned to vie for the lottery contract as Caribbean Gaming.

Mr. Wilmot denied any involvement with any lottery contract negotiations "in the District or elsewhere."

A third potential local interest emerged in 2009 — again with ties to Mr. Gray.

After the council voted down the Intralot-W2Tech contract award, Tom Lindenfeld, a high-level Fenty campaign strategist and Intralot lobbyist, switched sides and began working for GTech, which was forming a partnership with a Fenty ally who owns a local document management company.

Among the partners in that venture was Lorraine Green, former executive director of the D.C. Lottery and Charitable Games Control Board. Ms. Green also headed Mr. Gray's transition team when he became council chairman in 2006, and currently is his campaign manager, according to campaign statements.

Daryl Wiggins, a principal in the new partnership, said Ms. Green represented GTech to D.C. regulators during a visit that city inspectors paid to Michigan to observe the firm's operations. Other sources with knowledge of a meeting between lottery and GTech officials at their corporate headquarters in Rhode Island said Ms. Green was present at that meeting.

"We had a winning team," Mr. Wiggins said.

Intralot Vice President Byron Boothe described the GTech joint venture as a "dream team," with its principals aligned with both Mr. Fenty and Mr. Gray.

"I didn't think we had a snowflake's chance in the proverbial hot place," he said.

In early 2009, as the second round of bidding got under way, Intralot cut ties with Mr. Williams and W2Tech and decided to bid without a local partner.

Mr. Wilmot's group dropped out as a local bidder, too, but major lottery company Scientific Games bid the contract with a local businessman named Charles Hopkins.

Game point

In the first round, the chief financial officer emphasized price over technology, which favored Intralot. But in the second round, he changed the metric for evaluating the bids and focused instead on technology, which, according to sources familiar with the process, gave GTech a better chance.

Sources in the chief financial officer's office say D.C. is the only city that has evaluated lottery contracts more heavily in terms of technology than price, as the big three lottery operators offer such comparable services.

But a late-breaking development derailed GTech's bid.

The District's procurement laws afford a 12-point score out of 100 for firms that partner with local businesses. GTech's joint venture lost that 12-point edge when Ms. Green and her partners were disqualified by the Department of Small and Local Business Development (SLBD), which must certify all bidders.

According to sources in the CFO's office, GTech's partner was disqualified for lack of experience.

Though the SLBD's advisory board recommended certifying GTech's partner, sources in the chief financial officer's office said the director, Lee A. Smith III, a veteran government official and fraternity brother of Mr. Fenty, overrode their decision and rejected Ms. Green's group.

The disqualification cost GTech 12 points. It lost to Intralot by 11.

But the game was not over.

Soon after Intralot won the second round of bidding and was awarded the contract in October 2009, its representatives realized they could not get final council approval unless they had a local partner — and to get that approval, they needed to gain Mr. Gray's support.

Mr. Bailey, who formed a company in June 2009 partly to get into the lottery business, at one time had been considered as Intralot's local partner, but dropped out — only to reappear later.

"It was clear we needed to establish ourselves as a credible partnership," Mr. Boothe said. "We recognized that it's important for D.C. to have local partners associated with its lottery contract."

Deal or no deal?

In December, the council approved the award before that partnership was formed. According to city records, Mr. Bailey's firm was not certified as a company in Delaware until March 1, and was not registered in the District until March 29.

According to Mr. Boothe, Mr. Bailey — a longtime Maryland resident who owns a business in Virginia — owns 51 percent of the joint venture that will run the D.C. Lottery. Mr. Bailey's company, Veterans Services Corp., until recently did business out of his mother's house on Mississippi Avenue in Southeast D.C.

Mrs. Bailey is the company's chairman and will handle local hiring for the lottery joint venture.

"Intralot has the contract with D.C. and bears all the responsibility," said Mr. Boothe. "But Emmanuel will be and has become a key figure in our D.C. project."

Asked whether Mr. Chavous and Mr. Bailey had secured Mr. Gray's support for the 2008 lottery contract, Mr. Boothe said he was unaware of any such meetings. Mr. Booth also said he knew of no business relationship between Mr. Bailey and Mr. Chavous.

"I'd be startled if they had any sort of partnership or significant relationship," he said. "That would be more than a small conflict."

However, both Mr. Boothe and Mr. Chavous said Mr. Chavous provided unrelated legal services to Mr. Bailey with the consent of Intralot.

Mr. Chavous denied any business relationship with Mr. Bailey. The two friends will host a fundraiser at Mr. Chavous' law firm this summer for council member Yvette M. Alexander, one of Mr. Gray's staunchest allies.

"Having the D.C. Council review and approve contracts is a recipe for disaster," said Mr. Payne. "They are awarded on the basis of relationships. That has an effect on vendors, which hurts competition, and eventually the city."

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